<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
Arvin Meritor, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
<PAGE> 2
[ArvinMeritor Logo]
LETTER TO
SHAREOWNERS
NOTICE OF 2001
ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE> 3
[ArvinMeritor Logo]
December 29, 2000
Dear Shareowner:
You are cordially invited to attend the 2001 annual meeting of shareowners of
the Company.
The meeting will be held at the Company's World Headquarters, 2135 West Maple
Road, Troy, Michigan, on Wednesday, February 14, 2001, at 9 a.m. At the meeting
there will be a current report on the activities of the Company followed by
discussion and action on the matters described in the Proxy Statement.
Shareowners will have an opportunity to comment on or to inquire about the
affairs of the Company that may be of interest to shareowners generally.
If you plan to attend the meeting, please complete and return the form enclosed
with your proxy or direction card, or indicate your intention to attend when
voting by telephone or Internet, and an admittance card will be forwarded to you
promptly.
It is sincerely hoped that as many shareowners as can conveniently attend will
do so.
Sincerely yours,
<TABLE>
<S> <C>
/s/ Larry D. Yost /s/ V. William Hunt
Larry D. Yost V. William Hunt
Chairman of the Board Vice Chairman and
and Chief Executive Officer President
</TABLE>
<PAGE> 4
ARVINMERITOR, INC.
2135 WEST MAPLE ROAD
TROY, MICHIGAN 48084-7186
NOTICE OF 2001 ANNUAL MEETING OF SHAREOWNERS
TO THE SHAREOWNERS OF
ARVINMERITOR, INC.:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Shareowners of
ArvinMeritor, Inc. (the "Company") will be held at the Company's World
Headquarters, 2135 West Maple Road, Troy, Michigan, on Wednesday, February 14,
2001, at 9 a.m. (Eastern Standard Time) for the following purposes:
(a) to elect five members of the Board of Directors of the Company with
terms expiring at the Annual Meeting in 2004;
(b) to consider and vote upon a proposal to approve the selection by the
Board of Directors of the firm of Deloitte & Touche LLP as auditors of
the Company; and
(c) to transact such other business as may properly come before the
meeting.
Only shareowners of record at the close of business on December 8, 2000 will be
entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors.
/s/ Vernon G. Baker, II
Vernon G. Baker, II
Secretary
December 29, 2000
NOTE: THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND PROMPT RETURN OF THE
ACCOMPANYING PROXY. A RETURN ENVELOPE IS ENCLOSED.
<PAGE> 5
PROXY STATEMENT
The 2001 Annual Meeting of Shareowners of ArvinMeritor, Inc. (the "Company"
or "ArvinMeritor") will be held on February 14, 2001, for the purposes set forth
in the accompanying Notice of 2001 Annual Meeting of Shareowners. The Board of
Directors is soliciting proxies to be used at the Annual Meeting and any
adjournment, and is furnishing this statement and the accompanying proxy in
connection with its solicitation. This statement and the proxy are first being
sent to shareowners on or about December 29, 2000.
Shareowners of record may vote by (a) executing and returning a proxy in
the accompanying form; (b) calling a toll-free telephone number; or (c) voting
via the Internet. Specific instructions for telephone and Internet voting are
included on the enclosed proxy card. If a shareowner votes by telephone or
Internet, it is not necessary to return a proxy card. If you properly give a
proxy (including a written proxy or a proxy via telephone or Internet), your
shares will be voted as you specify in the proxy. If no specification is made,
the shares will be voted in accordance with the recommendations of the Board of
Directors. You may revoke your proxy prior to its exercise by delivering written
notice of revocation to the Secretary of the Company, by giving a valid, later
dated proxy or by attending the meeting and voting in person.
The Company was incorporated in Indiana in March 2000 in connection with
the merger (the "Merger") of Meritor Automotive, Inc. ("Meritor") and Arvin
Industries, Inc. ("Arvin"). The Merger was effected in two steps: (1) Meritor, a
Delaware corporation, reincorporated in Indiana by merging into ArvinMeritor,
its wholly-owned subsidiary, and (2) immediately thereafter, Arvin merged into
ArvinMeritor. The Merger was effective on July 7, 2000. Following the Merger,
shareowners of Arvin and Meritor were entitled to exchange their common stock
for shares of Common Stock, par value $1 per share, of the Company ("Common
Stock"), at specified exchange ratios.
The Company's policy is to keep confidential proxy cards, ballots and
voting tabulations that identify individual shareowners. However, exceptions to
this policy may be necessary in some instances to comply with legal requirements
and, in the case of any contested proxy solicitation, to verify the validity of
proxies presented by any person and the results of the voting. Inspectors of
election and any employees associated with processing proxy cards or ballots and
tabulating the vote must acknowledge their responsibility to comply with this
policy of confidentiality.
VOTING SECURITIES
Only shareowners of record at the close of business on December 8, 2000,
are entitled to receive notice of, and to vote at, the meeting. On December 8,
2000, the Company had outstanding 66,930,340 shares of Common Stock. Each holder
of Common Stock is entitled to one vote for each share held.
As of December 8, 2000, T. Rowe Price Trust Company, Owings Mills,
Maryland, as trustee under the Company's Meritor Savings Plan for its
participating employees, The Northern Trust Company, Chicago, Illinois, as
trustee under the Company's Arvin Employee Stock Benefit Trust, and Wells Fargo
Bank, N.A., Los Angeles, California, as trustee under the Rockwell International
Corporation ("Rockwell") Savings Plans for its participating employees, held the
following numbers of shares of Common Stock:
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
NAME NUMBER OF SHARES COMMON STOCK
---- ---------------- ----------------------
<S> <C> <C>
T. Rowe Price Trust Company...................... 1,204,185 1.80%
The Northern Trust Company....................... 1,930,753 2.88
Wells Fargo Bank, N.A. .......................... 4,388,569 6.56
</TABLE>
If you are a participant in any of these plans, your proxy card will also
serve as a voting instruction card for the trustee of that plan with respect to
shares held in your account. Shares held on account of the participants in these
plans will be voted by the respective trustees in accordance with instructions
from the participants (either in writing or by means of the Company's telephone
or Internet voting procedures). Where no instructions are received, shares held
in the Rockwell plans will be voted as the trustee deems proper, and
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<PAGE> 6
shares held in each of the Company plans will be voted by the respective trustee
in the same manner and proportion as shares for which instructions are received.
ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation provide that the Board of
Directors consists of three classes of directors with overlapping three-year
terms, and that the three classes should be as nearly equal in number as
possible. The Company's Board of Directors currently consists of nineteen
members.
One class of directors is elected each year with terms extending to the
Annual Meeting held three years later. Three of the seven directors in Class I,
Richard W. Hanselman, Charles H. Harff and Larry D. Yost, are standing for
re-election at the 2001 Annual Meeting, for terms expiring at the Company's
Annual Meeting in 2004. The remaining four Class I directors, Donald R. Beall,
John J. Creedon, Ivan W. Gorr and Don J. Kacek, each have determined to retire
as of the date of the 2001 Annual Meeting and not to stand for reelection. In
order to make the classes more equal in number, Joseph B. Anderson, Jr., and
William D. George, Jr., currently Class III directors, are standing for
reelection as Class I directors at the 2001 Annual Meeting, for terms expiring
in 2004.
Proxies will be voted at the meeting (unless authority to do so is
withheld) for the election as directors of the five nominees specified in Class
I -- Nominees for Directors with Terms Expiring in 2004 below. If for any reason
any of the nominees is not a candidate (which is not expected) when the election
occurs, it is likely that either (a) proxies would be voted for the election of
the other nominees and of a substitute nominee, or (b) the Board of Directors
would reduce the number of directors.
INFORMATION AS TO NOMINEES FOR
DIRECTORS AND CONTINUING DIRECTORS
The following information, as reported to the Company, is shown below for
each nominee for director and each continuing director: name, age and principal
occupation; period during which he or she has served as a director; position, if
any, with the Company; business experience; other directorships held; and the
committees of the Board of Directors on which the nominee or continuing director
serves.
CLASS I -- NOMINEES FOR DIRECTORS WITH TERMS EXPIRING IN 2004
JOSEPH B. ANDERSON, JR.
Chairman of the Board and Chief Executive Officer, Chivas Industries LLC
(Automotive Components)
Age 57
[JOSEPH B. ANDERSON PHOTO]
Mr. Anderson, a director since July 2000 and director of Meritor
from September 1997 until the Merger, is Chairman of the Board
Composition Committee and a member of the Environmental and
Social Responsibility Committee. He is Chairman of the Board and
Chief Executive Officer of Chivas Industries LLC, having held
that position (including with its predecessor, Chivas Products,
Ltd.) since October 1994. From December 1992 to July 1993, Mr.
Anderson was President and Chief Executive Officer of Composite
Energy Management Systems, Incorporated (automotive components).
Mr. Anderson served in a variety of positions, primarily in
manufacturing, with General Motors Corporation (automotive) from
1979 until December 1992. He also served as an assistant to the
U.S. Secretary of Commerce from 1977 to 1979. Mr. Anderson is a
director of Quaker Chemical Corporation, United Services
Automotive Association and R. R. Donnelley & Sons Co. and is a
trustee of Kettering University. He is also a director, trustee
or member of a number of business, educational and civic
organizations.
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<PAGE> 7
WILLIAM D. GEORGE, JR.
Retired President and Chief Executive Officer of S.C. Johnson Wax (Chemical
Specialty Products)
Age 68
[WILLIAM D. GEORGE PHOTO]
Mr. George, a director since July 2000 and a director of Arvin
from 1994 until the Merger, is Chairman of the Audit Committee
and a member of the Environmental and Social Responsibility
Committee. Since 1981, he served in a variety of positions with
S.C. Johnson Wax, including Executive Vice President and Chief
Operating Officer, Worldwide Consumer Products from 1988 to
1990, and President, Worldwide Consumer Products from 1990 to
1993. Mr. George was elected President and Chief Executive
Officer of S.C. Johnson Wax in 1993, positions he held until
retirement in 1997. He is also a director of Ralcorp Holdings,
Reilly Industries, Inc., and Nobex Corporation, and is a member
of the Board of Trustees of Carthage College.
RICHARD W. HANSELMAN
Chairman of the Board, Health Net, Inc. (Managed Care Provider)
Age 73
[RICHARD W. HANSELMAN PHOTO]
Mr. Hanselman, a director since July 2000 and a director of
Arvin from 1983 until the Merger, is a member of the Board
Composition Committee. He is the Chairman of the Board of Health
Net, Inc., a position he has held (including with its
predecessor, Foundation Health Corporation) since 1999. Earlier,
Mr. Hanselman joined Genesco, Inc. (footwear and apparel) in
1980 and was named Chief Executive Officer in 1981, serving in
that capacity and as Chairman of the Board until 1986. He serves
on the boards of four privately held companies and is Chairman
of one, and is a trustee of the Committee for Economic
Development.
CHARLES H. HARFF
Retired Senior Vice President, General Counsel and Secretary, Rockwell
International Corporation (Electronic Controls and Communications)
Age 71
[CHARLES H. HARFF PHOTO]
Mr. Harff, a director since July 2000 and a director of Meritor
from May 1997 until the Merger, is a member of the Audit
Committee and the Compensation and Management Development
Committee. He is a consultant to Rockwell. From June 1984, when
he joined Rockwell, until November 1994, Mr. Harff served as
Senior Vice President, General Counsel and Secretary of
Rockwell. From November 1994 to February 1996, Mr. Harff served
as Senior Vice President and Special Counsel of Rockwell. He is
a director of the Fulbright Association, the Christian A.
Johnson Endeavor Foundation and several civic organizations.
3
<PAGE> 8
LARRY D. YOST
Chairman of the Board and Chief Executive Officer of the Company
Age 62
[LARRY D. YOST PHOTO]
Mr. Yost has been a director since March 2000, when he was
elected to his present position, and was a director of Meritor
from May 1997 until the Merger. Mr. Yost joined Allen-Bradley
Company, LLC (automation), a subsidiary of Rockwell, as a
manager in 1971 and, after serving in a number of increasingly
responsible management positions, served as Senior Vice
President, Operations, of Allen-Bradley from July 1992 until
November 1994. He served as President, Heavy Vehicle Systems of
Rockwell from November 1994 until March 1997 and was Senior Vice
President and President, Automotive and Acting President, Heavy
Vehicle Systems of Rockwell from March 1997 to September 1997.
He served as Chairman of the Board and Chief Executive Officer
of Meritor from May 1997 until July 2000. Mr. Yost is a director
of Kennametal Inc. and a trustee of Kettering University.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THESE NOMINEES, WHICH
IS PRESENTED AS ITEM (a).
CLASS II -- CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2002
STEVEN C. BEERING
President Emeritus, Purdue University
Age 68
[STEVEN C. BEERING PHOTO]
Dr. Beering, a director since July 2000 and a director of Arvin
from 1983 until the Merger, is Chairman of the Environmental and
Social Responsibility Committee and a member of the Compensation
and Management Development Committee. He is the President
Emeritus of Purdue University, having held the position of
President of Purdue University and Purdue University
Foundations, a private support organization, from 1983 until
2000. Dr. Beering is a director of Eli Lilly and Company,
NiSource Inc., American United Life Insurance Co. and Veridian
Corporation. He is also Chairman of the Board of the Purdue
Research Foundation and a trustee of the University of
Pittsburgh.
RHONDA L. BROOKS
President, Exterior Systems Business, Owens Corning, Inc. (Building Materials
and Fiberglass Composites)
Age 48
[RHONDA L. BROOKS PHOTO]
Ms. Brooks, a director since July 2000 and a director of Meritor
from July 1999 until the Merger, is a member of the
Environmental and Social Responsibility Committee. She has
served as the President of the Exterior Systems Business of
Owens Corning, Inc. since June 2000. She served Owens Corning as
President of the Roofing Systems Business from December 1997 to
June 2000, as Vice President, Investor Relations from January to
December 1997 and as Vice President-Marketing of the Composites
Division from 1995 to 1996. Prior to that time, she served as
Senior Vice President and General Manager of PlyGem Industries,
Inc. from 1994 to 1995, and as Vice President -- Oral Care and
New Product Strategies, and Vice President -- Marketing of
Warner Lambert Company from 1990 to 1994. She is a director of
Central Vermont Public Service Corporation and a trustee of the
University of Toledo in Toledo, Ohio.
4
<PAGE> 9
JOSEPH P. FLANNERY
Chairman of the Board, President and Chief Executive Officer of Uniroyal
Holding, Inc. (Financial Holding Company)
Age 67
[JOSEPH P. FLANNERY PHOTO]
Mr. Flannery, a director since July 2000 and a director of Arvin
from 1991 until the Merger, is a member of the Board Composition
Committee. He is the Chairman of the Board, President and Chief
Executive Officer of Uniroyal Holding, Inc., positions he has
held since 1987. Mr. Flannery is a director of Ingersoll-Rand
Company, K-Mart Corp., Newmont Mining Corporation and The Scotts
Company.
ROBERT E. FOWLER, JR.
Retired Chairman and Chief Executive Officer of IMC Global Inc. (Agricultural
Products and Services)
Age 65
[ROBERT E. FOWLER, JR. PHOTO]
Mr. Fowler, a director since July 2000 and a director of Arvin
from 1999 until the Merger, is a member of the Compensation and
Management Development Committee and the Environmental and
Social Responsibility Committee. He served as President and
Chief Operating Officer of IMC Global Inc. from 1996 following
its merger with The Vigoro Corporation, of which he had served
as President, Chief Executive Officer and a director since 1994.
He was elected Chief Executive Officer in 1997 and Chairman in
1998 and served in these capacities until October 1999. Mr.
Fowler is also a director of Anixter International Inc.
HAROLD A. POLING
Retired Chairman of the Board and Chief Executive Officer, Ford Motor Company
(Automotive)
Age 75
[HAROLD A. POLING PHOTO]
Mr. Poling, a director since July 2000 and a director of Meritor
from September 1997 until the Merger, is Chairman of the
Compensation and Management Development Committee and a member
of the Board Composition Committee. He is an investor in
Metapoint Partners, an investment partnership. He retired as
Chairman of the Board and Chief Executive Officer of Ford Motor
Company in January 1994. He joined Ford in 1951 and served in a
number of senior management positions prior to becoming
President (in 1975) and Chairman (in 1977) of Ford in Europe.
Mr. Poling became President and Chief Operating Officer of Ford
in February 1985 and served as Chairman of the Board and Chief
Executive Officer from March 1990 to January 1994. He is a
director of Shell Oil Company and Thermadyne Holdings
Corporation, and an advisory director of Donaldson, Lufkin and
Jenrette, Inc. and LTV Corporation. He is Chairman of Eclipse
Aviation Corp. He is also a director, trustee or member of a
number of business, educational and civic organizations.
5
<PAGE> 10
MARTIN D. WALKER
Retired Chairman of the Board and Chief Executive Officer of M.A. Hanna Company
(Specialty Chemicals, Plastics and Rubber Products)
Age 68
[MARTIN D. WALKER PHOTO]
Mr. Walker, a director since July 2000, is a member of the Board
Composition Committee. He is a principal of MORWAL Investments.
Mr. Walker served M.A. Hanna Company as Chief Executive Officer
from October 1998 until June 1999 and as Chairman of the Board
from October 1998 until December 1999. He had previously served
M.A. Hanna as Chief Executive Officer from 1986 until December
1996 and as Chairman of the Board from 1986 until June 1997. He
is a director of Comerica, Inc., Goodyear Tire and Rubber Co.,
Lexmark International Group, Textron, Inc. and The Timken
Company.
CLASS III -- CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2003
V. WILLIAM HUNT
Vice Chairman and President of the Company
Age 56
[V. WILLIAM HUNT PHOTO]
Mr. Hunt has been a director since July 2000, when he was
elected to his present position, and was a director of Arvin
from 1983 until the Merger. Mr. Hunt joined Arvin in 1976 and
was elected Vice President-Administration in 1980, Secretary in
1982, Executive Vice President in 1990, President and Chief
Operating Officer in 1996, Chief Executive Officer in May 1998
and Chairman of the Board in April 1999. He served as Chairman
of the Board, President and Chief Executive Officer of Arvin
until July 2000. Mr. Hunt is a director of the Motor Equipment
Manufacturers' Association and of Manufacturers' Alliance/MAPI,
Inc.
VICTORIA B. JACKSON
President, Victoria Belle, Inc. (Jewelry)
Age 45
[VICTORIA B. JACKSON PHOTO]
Ms. Jackson, a director since July 2000 and a director of
Meritor from July 1999 until the Merger, is a member of the
Audit Committee. She currently serves as President of Victoria
Belle, Inc., a fine jewelry design and marketing firm. She was
President and Chief Executive Officer of DSS/Prodiesel, Inc.
(transportation components) from 1979 until 1998, when the
company was sold to TransCom USA. She served as a consultant to
TransCom USA from 1998 to February 2000. Ms. Jackson is a
director of AmSouth Bancorporation and Whitman Corporation, and
is a member of various business, educational and civic
organizations.
6
<PAGE> 11
JAMES E. MARLEY
Retired Chairman of the Board, AMP Inc. (Electrical and Electronics Components
and Cabling Products)
Age 65
[JAMES E. MARLEY PHOTO]
Mr. Marley, a director since July 2000 and a director of Meritor
from April 1999 until the Merger, is a member of the Audit
Committee and the Environmental and Social Responsibility
Committee. He is the retired Chairman of the Board of AMP Inc.,
serving in that position from 1993 to 1998. He joined AMP in
1963 and served in a variety of engineering and executive
positions until his retirement in 1998. He is also a director of
Armstrong World Industries Inc. and a number of business,
educational and civic organizations, and is a member of a number
of engineering and management professional associations.
JAMES E. PERRELLA
Chairman of the Board, Ingersoll-Rand Company (Industrial Components)
Age 65
[JAMES E. PERRELLA PHOTO]
Mr. Perrella, a director since July 2000 and a director of Arvin
from 1999 until the Merger, is a member of the Board Composition
Committee and the Compensation and Management Development
Committee. Mr. Perrella has served as Chairman of the Board of
Ingersoll-Rand Company since 1993 and as a member of its Board
of Directors since 1992. Between 1993 and October 1999, he also
served as President and Chief Executive Officer of
Ingersoll-Rand. Mr. Perrella is also a director of Becton
Dickinson and Company, Bombardier Inc., Milacron Inc. and Rio
Algorn Limited.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors manages or directs the management of the business of
the Company. The Board has established four standing committees the principal
functions of which are briefly described below. In fiscal year 2000, the Meritor
board of directors held eleven regularly scheduled and special meetings, the
Arvin board of directors held six regularly scheduled and special meetings, and
the Company's Board of Directors held two regularly scheduled meetings. Each
Company director attended at least 75% of the aggregate number of meetings of
the Meritor board, the Arvin board, the Company Board and related committees on
which he or she served, during the period in fiscal year 2000 in which he or she
was a director, except Mr. Perrella (67%) and Mr. George (67%).
The Audit Committee is currently composed of six non-employee directors,
William D. George, Jr. (chairman), Ivan W. Gorr, Charles H. Harff, Victoria B.
Jackson, Don J. Kacek and James E. Marley. The Audit Committee has a written
charter, which it reviews and reassesses annually for compliance with recently
adopted rules of the New York Stock Exchange. The charter is attached as an
appendix to this proxy statement. Among its functions, the Audit Committee
selects and recommends to the Board of Directors the employment of independent
public accountants for the Company, subject to approval of the shareowners;
reviews the scope of and procedures used in audits and reviews of the Company's
financial statements by the independent public accountants; reviews the
Company's annual and quarterly financial statements before their release;
reviews and approves the fees charged by the independent public accountants and
the scope and extent of any non-audit services they perform for the Company;
receives and evaluates a report from the independent public accountants as to
their independence; reviews the adequacy of the Company's systems of internal
controls and recommendations of the independent public accountants with respect
to internal controls;
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reviews the scope and results of internal audits; reviews and acts on comments
and suggestions by the independent public accountants and by the Company's
internal auditors with respect to their audit activities; monitors compliance by
the employees with the Company's standards of business conduct policies;
monitors risk exposures and initiatives to control such exposures; and reviews
all of the foregoing with management. The Audit Committee held one meeting
between the date of the Merger and the end of fiscal year 2000, and the Meritor
audit committee held two meetings prior to the Merger in fiscal year 2000.
The Board Composition Committee is currently composed of seven non-employee
directors, Joseph B. Anderson, Jr. (chairman), Donald R. Beall, Joseph P.
Flannery, Richard W. Hanselman, James E. Perrella, Harold A. Poling and Martin
D. Walker. The principal functions of the Board Composition Committee are to
consider and recommend to the Board qualified candidates for election as
directors of the Company and periodically to prepare and submit to the Board for
adoption the Committee's selection criteria for director nominees. The Committee
also periodically assesses and reports to the Board on the performance of the
Board of Directors. The Board Composition Committee held one meeting from the
date of the Merger to the end of the fiscal year, and the corresponding Meritor
committee held one meeting in fiscal year 2000. Shareowners may recommend
candidates for consideration by the Committee by writing to the Secretary of the
Company at its World Headquarters in Troy, Michigan, giving the candidate's
name, biographical data and qualifications. A written statement from the
candidate, consenting to be named as a candidate and, if nominated and elected,
to serve as a director, should accompany any such recommendation.
The six members of the Compensation and Management Development Committee
(the "Compensation Committee"), Harold A. Poling (chairman), Donald R. Beall,
Steven C. Beering, Robert E. Fowler, Jr., Charles H. Harff and James E.
Perrella, are non-employee directors and are not eligible to participate in any
of the plans or programs that are administered by the Committee (except the
Directors Stock Plan). The principal functions of the Compensation Committee are
to evaluate the performance of the Company's senior executives and plans for
management succession and development, to consider the design and
competitiveness of the Company's compensation plans, to review and approve
senior executive compensation and to administer the Company's incentive,
deferred compensation, stock option and long-term incentives plans. The
Compensation Committee held one meeting in fiscal year 2000 after the Merger,
and the corresponding Meritor committee held five meetings in fiscal year 2000.
The Environmental and Social Responsibility Committee, which is composed of
six non-employee directors, Steven C. Beering (chairman), Joseph B. Anderson,
Jr., Rhonda L. Brooks, Robert E. Fowler, Jr., William D. George, Jr. and James
E. Marley, reviews and assesses the Company's policies and practices in the
following areas and recommends revisions as appropriate: employee relations,
with emphasis on equal employment opportunity and advancement; the protection
and enhancement of the environment and energy resources; product integrity and
safety; employee health and safety; and community and civic relations, including
programs for and contributions to health, educational, cultural and other social
institutions. This committee held one meeting between the date of the Merger and
the end of fiscal year 2000. Prior to the Merger, the corresponding Meritor
committee held one meeting in fiscal year 2000.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive a retainer at the rate of
$35,000 per year for Board service. No additional retainer is paid for service
on committees.
Pursuant to the Directors Stock Plan, each non-employee director receives a
grant of 1,000 shares of Common Stock immediately following each Annual Meeting
of Shareowners. In addition, pursuant to the Directors Stock Plan, each
non-employee director is granted options to purchase, at the closing price of
the Common Stock on the New York Stock Exchange -- Composite Transactions
reporting system on the date of the grant, 3,000 shares of Common Stock
immediately after each Annual Meeting of Shareowners of the Company. A
non-employee director who is elected to the Board during the fiscal year
receives a pro rata portion of these grants.
A director may elect to defer payment of all or part of the cash retainer
fees to a later date, with interest on deferred amounts accruing quarterly at a
rate equal to 120% of the Federal long-term rate set each month
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by the Secretary of the Treasury. Each director also has the option each year to
defer all of the annual grant of shares and all or any portion of the cash
retainer by electing to receive restricted shares that could be forfeited if
certain conditions are not satisfied. The restricted shares in lieu of the cash
retainer are valued at the closing price of the Common Stock on the New York
Stock Exchange -- Composite Transactions reporting system on the date each
retainer payment would otherwise be made in cash.
Directors who are also employees of the Company or a subsidiary of the
Company do not receive compensation for serving as directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
On October 5, 2000, Owens Corning, Inc. filed a petition for reorganization
under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court in
Wilmington, Delaware. Owens Corning stated that it took the action to address
demands on its cash flow resulting from asbestos-related liability. Rhonda L.
Brooks, a director of the Company, is President of the Exterior Systems Business
of Owens Corning.
In October 1997, Chivas Products, Ltd., of which Joseph B. Anderson, Jr., a
director of the Company, was Chairman of the Board and Chief Executive Officer,
filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in
U.S. Bankruptcy Court in the Eastern District of Michigan. On March 4, 1998, the
court approved a restructuring plan, pursuant to which the assets of Chivas
Products, Ltd. were sold on March 17, 1998 to Chivas Industries LLC, a joint
venture between Mr. Anderson and Continental Plastics Co. Mr. Anderson is
Chairman of the Board and Chief Executive Officer of the joint venture.
9
<PAGE> 14
OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES
The following table shows the beneficial ownership, reported to the Company
as of November 30, 2000, of the Company's Common Stock of (a) each director, (b)
each executive officer listed in the Summary Compensation Table under the
heading Executive Compensation below and (c) such persons and other executive
officers as a group. See Voting Securities above for information on beneficial
holders of more than 5% of the Company's Common Stock.
BENEFICIAL OWNERSHIP AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------
NAME SHARES(1)(2) PERCENT OF CLASS(3)
---- ------------ -------------------
<S> <C> <C>
Joseph B. Anderson, Jr. ............................... 6,000(4) *
Donald R. Beall........................................ 119,788(4)(5)(6) .18
Steven C. Beering...................................... 5,350 *
Rhonda L. Brooks....................................... 1,874(7) *
John J. Creedon........................................ 8,316(8) *
Joseph P. Flannery..................................... 5,250 *
Robert E. Fowler, Jr. ................................. 4,750(9) *
William D. George, Jr. ................................ 6,750 *
Ivan W. Gorr........................................... 5,250 *
Richard W. Hanselman................................... 6,250 *
Charles H. Harff....................................... 21,547(10) *
V. William Hunt........................................ 918,186(6)(11)(12) 1.36
Victoria B. Jackson.................................... 1,874 *
Don J. Kacek........................................... 4,750(12) *
James E. Marley........................................ 10,316(4) *
James E. Perrella...................................... 6,750 *
Harold A. Poling....................................... 42,000(4) *
Martin D. Walker....................................... 10,653(13) *
Larry D. Yost.......................................... 468,093(4)(6)(12)(14) .70
Prakash R. Mulchandani................................. 189,945(4)(6) .28
Terrence E. O'Rourke................................... 38,685(6) *
Thomas A. Madden....................................... 188,019(4)(6)(12) .28
All of the above and other executive officers as a
group (35 persons)................................... 2,587,996(4)(6)(12) 3.77
</TABLE>
---------------
* Less than 0.1%
(1) Each person has sole voting and investment power with respect to the shares
listed unless otherwise indicated.
(2) Includes the following numbers of shares of Common Stock which may be
acquired upon exercise of options that were exercisable or would become
exercisable within 60 days: 3,375 shares for each of Messrs. Anderson,
Beall, Creedon, Harff and Poling; 562 shares for each of Ms. Brooks and Ms.
Jackson; 750 shares for Mr. Marley; 3,000 shares for Messrs. Beering,
Flannery, George, Gorr, Hanselman and Kacek; 2,000 shares for Mr. Fowler;
1,000 shares for Mr. Perrella; 354,500; 630,712; 148,750; 21,000 and
149,375 shares for Messrs. Yost, Hunt, Mulchandani, O'Rourke and Madden,
respectively; and 1,691,092 shares for all directors and executive officers
as a group.
(3) For purposes of computing the percentage of outstanding shares beneficially
owned by each person, the number of shares owned by that person and the
number of shares outstanding includes shares as to which such person has a
right to acquire beneficial ownership within 60 days (for example, through
the
10
<PAGE> 15
exercise of stock options, conversions of securities or through various
trust arrangements), in accordance with Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, as amended.
(4) Includes restricted shares of Common Stock awarded under the Directors
Stock Plan or the Meritor 1997 Long-Term Incentives Plan, as applicable.
Restricted shares are held by the Company until certain conditions are
satisfied.
(5) Includes shares as to which beneficial ownership is disclaimed, as follows:
5,037 shares held for the benefit of family members and 2,499 shares owned
by the Beall Family Foundation, of which Mr. Beall is President and a
director.
(6) Includes shares beneficially owned under the Company's and Rockwell's
Savings Plans and the Company's Deferred Compensation and Equity Plans.
Does not include the following share equivalents held under supplemental
savings plans of Rockwell and the Company on November 30, 2000: 7,770, 783,
and 2,242 shares for Messrs. Yost, Mulchandani and Madden, respectively,
and 13,469 shares for all directors and executive officers as a group.
(7) Includes 1,312 shares held as trustee of a revocable trust.
(8) Includes 4,125 shares held as trustee and beneficiary of a revocable trust.
(9) Includes 2,000 shares held as trustee of a revocable trust.
(10) Includes 2,332 shares held by the Charles H. and Marion M. Harff Charitable
Remainder Trust and 15,840 shares held by the Charles H. Harff Revocable
Living Trust. Mr. Harff is co-trustee of each such trust.
(11) Includes 3,955 shares held in the Hunt Family Foundation.
(12) Includes shares held jointly or in other capacities or held by a spouse, as
to which, in some cases, beneficial ownership is disclaimed.
(13) Includes 2,133 shares held in the Martin D. Walker Charitable Remainder
Trust, 3,750 shares held in the Mary J. Walker Trust, and 1,125 shares held
in the Martin D. Walker Trust, of which Mr. Walker is trustee, and 2,249
shares held in the Walker Charitable Foundation.
(14) Includes deferred awards of Common Stock.
11
<PAGE> 16
EXECUTIVE COMPENSATION
The Company began operation as a combined company on July 7, 2000. The
information shown below reflects the annual and long-term compensation, from all
sources, of the chief executive officer of the Company and the other four most
highly compensated executive officers of the Company at September 30, 2000 (the
"Named Executive Officers"). The compensation reported below for the fiscal year
ended September 30, 2000 is for services rendered in all capacities to the
Company and its subsidiaries from the date of the Merger to September 30, 2000,
and to Arvin or Meritor and their respective subsidiaries, as applicable, for
the period from October 1, 1999 to July 7, 2000. The compensation reported below
for the fiscal years ended September 30, 1999 and 1998 is for services rendered
in all capacities to Meritor or Arvin and their respective subsidiaries, as
applicable.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------------
-------------------------------- STOCK
OTHER RESTRICTED UNDERLYING ALL
ANNUAL STOCK OPTIONS LONG-TERM OTHER
NAME AND PRINCIPAL POSITION COMPEN- AWARDS (# OF INCENTIVE COMPEN-
WITH THE COMPANY(1) YEAR SALARY BONUS(2) SATION ($)(4) SHARES)(5) PAYMENTS(6) SATION(7)
--------------------------- ---- -------- ---------- ------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry D. Yost............ 2000 $700,000 $ 500,000 $27,881 -- 80,250 $ 300,382 $ 741,375(8)
Chairman of the 1999 575,000 600,000 25,066 -- 80,250 0 32,813
Board & 1998 475,000 400,000 10,339 -- 251,250 566,400 28,528
Chief Executive Officer
V. William Hunt.......... 2000 771,154 0 21,249 0 425,627 1,163,463 8,136,734(9)
Vice Chairman and 1999 679,327 850,527(3) 13,920 $184,844 51,785 0 65,910
President 1998 534,807 1,009,192(3) 8,992 335,563 176,471 0 48,362
Prakash R. Mulchandani... 2000 364,000 80,000 19,898 -- 43,500 115,195 21,825
Senior Vice President 1999 325,000 256,000 14,909 -- 43,500 0 18,867
and President, Heavy 1998 264,000 168,300 5,667 -- 110,250 705,165 15,840
Vehicle Systems
Terrence E. O'Rourke..... 2000 336,000 195,100 24,476 -- 37,500 -- 310,080(8)
Senior Vice President 1999 163,636 119,000 12,007 -- 25,500 -- 0
And President, Light 1998 -- -- -- -- -- -- --
Vehicle Systems
Thomas A. Madden......... 2000 310,000 200,000 25,402 -- 30,750 115,195 328,425(8)
Senior Vice 1999 275,000 200,000 29,303 -- 30,750 0 15,775
President & Chief 1998 260,000 153,500 18,946 -- 77,250 92,920 15,600
Financial Officer
</TABLE>
---------------
(1) The table reflects the positions held with the Company at September 30,
2000. The following Named Executive Officers served Meritor and its
subsidiaries in the following capacities during fiscal years 1998, 1999 and
2000: Mr. Yost -- Chairman of the Board and Chief Executive Officer
(October 1997-July 2000); Mr. Mulchandani -- Senior Vice President and
President, Heavy Vehicle Systems (January 1998-July 2000), and Senior Vice
President and President, Worldwide Truck and Trailer Systems (October
1997-December 1997); Mr. O'Rourke -- Senior Vice President and President,
Light Vehicle Systems (March 1999-July 2000); and Mr. Madden -- Senior Vice
President and Chief Financial Officer (October 1997-July 2000). Mr. Hunt
served Arvin and its subsidiaries during this period as Chairman of the
Board (April 1999-July 2000), Chief Executive Officer (May 1998-July 2000)
and President (October 1997-July 2000).
(2) Reflects amount awarded, even if deferred for future payment.
(3) For fiscal years 1999 and 1998, includes cash bonuses plus the value of
performance shares distributed to Mr. Hunt in the form of Arvin common
stock.
(4) Represents the value of restricted shares of Arvin common stock awarded in
fiscal years 1999 and 1998. Dividends are paid on these shares currently.
These shares were converted to restricted shares of Company Common Stock at
the time of the Merger. Mr. Hunt held 23,217 restricted shares at the end
of fiscal year 2000 with a value of $341,000, based on the closing price of
the Company's Common Stock ($14.6875) on the New York Stock
Exchange -- Composite Transactions reporting system on September 29, 2000,
the last trading day of the fiscal year.
12
<PAGE> 17
(5) Except for 125,627 options granted to Mr. Hunt in connection with the
Merger, stock options were originally issued as options to purchase Arvin
or Meritor common stock, as applicable, and were converted to options to
purchase Company Common Stock at the time of the Merger. Stock options for
Messrs. Yost, Mulchandani and Madden for fiscal year 1998 include one-time
incentive grants incident to the Company's becoming a publicly-held company
and additional grants made in connection with the early termination after
the first year of a three-year performance period established under
Rockwell's long-term incentive plan. See Long-Term Incentive Plan Awards
below.
(6) Long-term incentive payments for Messrs. Yost, Mulchandani and Madden
consist of (a) cash and the market value of Meritor common stock paid by
Meritor for fiscal year 1998 with respect to a performance plan established
under Rockwell's long-term incentives plan; and (b) cash paid by the
Company for fiscal year 2000 with respect to a performance plan established
under the Meritor 1997 Long-Term Incentives Plan. The three-year
performance cycle for the period October 1, 1996-September 30, 1999 was
terminated after the first year and payments with respect to that cycle
were made at the time of termination. As a result, no long-term incentive
payments were made to these individuals in 1999. See Long-Term Incentive
Plan Awards below.
(7) This column includes amounts contributed or accrued for fiscal years 2000,
1999 and 1998 for the Named Executive Officers under employee savings plans
and related supplemental savings plans of the Company for the period from
July 7 to September 30, 2000, and of Arvin and Meritor, as applicable, for
periods prior to July 7, 2000.
(8) These amounts include bonuses paid in recognition of significant
contributions in effecting the Merger, in the following amounts: Mr.
Yost -- $700,000; Mr. O'Rourke -- $300,000; and Mr. Madden -- $310,000. See
Offer Letters to Other Executive Officers below.
(9) This amount includes $7,732,662 paid to Mr. Hunt in connection with the
Merger and related employer contributions to the Arvin savings and
supplemental savings plans. See Employment Agreement with V. William Hunt
below.
Mr. Mulchandani will retire from all positions with the Company effective
December 31, 2000. The Company has entered into an arrangement with Mr.
Mulchandani pursuant to which he will receive 26 months of pay at his 2000
salary rate, payable in monthly installments through February 28, 2003. He will
also continue to be eligible for a pro rata annual incentive award for the
quarter ended December 31, 2000, and for pro rata payments with respect to the
three-year performance periods ending in 2001 and 2002 under 1997 Long-Term
Incentives Plan, in each case based on the portion of the performance period
prior to his retirement. All stock options that he holds will vest on February
28, 2003 and be exercisable for three years thereafter. In addition, for
specified periods of time, Mr. Mulchandani will continue to participate in
various Company benefit programs, including the Company's savings plan and
medical, dental and insurance programs, and will be provided a Company-leased
vehicle, a company-sponsored club membership and financial counseling
reimbursement.
13
<PAGE> 18
OPTION GRANTS
The following table shows option grants to the Named Executive Officers
made during the fiscal year ended September 30, 2000 pursuant to the Meritor
1997 Long-Term Incentives Plan or the Arvin 1998 Stock Benefit Plan. Except for
125,627 options to purchase Company Common Stock granted to Mr. Hunt in
connection with the Merger (see Employment Agreement with V. William Hunt
below), these grants were made as options to purchase Meritor or Arvin common
stock, as applicable, and were converted to options to purchase Company Common
Stock at the time of the Merger. These options are reflected in the Summary
Compensation Table above.
<TABLE>
<CAPTION>
GRANT DATE
OPTION GRANTS VALUE
----------------------------------------------------------------- ----------
PERCENTAGE OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES TO COMPANY EXERCISE
UNDERLYING EMPLOYEES OR BASE GRANT DATE
OPTIONS GRANTED IN FISCAL PRICE (PER EXPIRATION PRESENT
NAME (# OF SHARES) 2000(5) SHARE)(6) DATE VALUE(8)
---- ---------------- ------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Larry D. Yost................. 80,250(1) 4.74% $22.25 11/12/09 $ 785,380(9)
V. William Hunt............... 300,000(2) 17.73 19.3125(7) 2/9/10 2,256,000(10)
48,162(3) 2.85 17.3125 7/10/10 315,395(11)
77,465(4) 4.58 17.3125 7/10/10 507,292(11)
Prakash R. Mulchandani........ 43,500(1) 2.57 22.25 11/12/09 425,720(9)
Terrence E. O'Rourke.......... 37,500(1) 2.22 22.25 11/12/09 367,000(9)
Thomas A. Madden.............. 30,750(1) 1.82 22.25 11/12/09 300,940(9)
</TABLE>
---------------
(1) These grants were made under the Meritor 1997 Long-Term Incentives Plan on
November 12, 1999. The first of three approximately equal installments of
these options became exercisable November 12, 2000, and the second and
third installments will become exercisable on November 12, 2001 and
November 12, 2002, respectively.
(2) This grant was made on February 9, 2000 under the Arvin 1998 Stock Benefit
Plan. Vesting of these options was accelerated as a result of the Merger,
and they are all currently exercisable.
(3) This grant was made under the terms of Mr. Hunt's employment agreement in
connection with the Merger. All of these options will become exercisable on
July 10, 2001.
(4) This grant was made under the terms of Mr. Hunt's employment agreement in
connection with the Merger. Half of these options will become exercisable
on July 10, 2001 and the remaining options will become exercisable on July
10, 2002.
(5) Based on the total number of options to purchase Meritor common stock (as
adjusted to reflect the exchange ratio relating to the Merger), Arvin
common stock and Company Common Stock issued to employees during the fiscal
year.
(6) Exercise prices reflect market value per share (as defined in the
applicable plan) of Meritor common stock (as adjusted to reflect the
exchange ratio relating to the Merger), Arvin common stock or Company
Common Stock, as applicable, on the date of grant.
(7) Pursuant to the terms of the conversion of Arvin options into options to
purchase Company Common Stock, holders of these options will receive a cash
payment of $1 per share at the time of exercise. The exercise price in the
table is net of this cash payment.
(8) These values are based on the Black-Scholes option pricing model, which
attempts to portray the value of an option at the date of grant. The actual
value, if any, that may be realized from these options by the officer will
depend solely on the gain in stock price over the exercise price when the
options are exercised.
(9) Based on a per option share value (adjusted to reflect the exchange ratio
relating to the Merger) of $9.79, using the following assumptions and
inputs: options exercised after 7 1/2 years; weighted one-year stock price
volatility and dividend yield of 40 % and 2 %, respectively; an interest
rate of 6.18%, which
14
<PAGE> 19
was the zero coupon 7 1/2-year Treasury bond rate at the date of grant; and an
annual adjustment of 3% for risk of forfeiture during the vesting period.
(10) Based on a per option share value of $7.52, using the following assumptions
and inputs: options exercised after 7 1/2 years; weighted one-year stock
price volatility and dividend yield of 30% and 2.2%, respectively; an
interest rate of 6.84%, which was the zero coupon 7 1/2-year Treasury bond
rate at the date of grant; and an annual adjustment of 3% for risk of
forfeiture during the vesting period.
(11) Based on a per option share value of $6.55, using the following assumptions
and inputs: options exercised after 7 1/2 years; weighted one-year stock
price volatility and dividend yield of 40.4% and 3%, respectively; an
interest rate of 5.5%; and an annual adjustment of 3% for risk of
forfeiture during the vesting period.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The Named Executive Officers did not exercise any options to purchase
Meritor or Arvin common stock or Company Common Stock during the fiscal year
ended September 30, 2000. The following table shows the number of shares of
Company Common Stock underlying unexercised options, and the value of
unexercised in-the-money options, held by the Named Executive Officers as of
September 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 2000 SEPTEMBER 30, 2000(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Yost.................. 0 $0 239,500 201,500 $0 $0
V. William Hunt................ 0 0 630,712 125,627 0 0
Prakash R. Mulchandani......... 0 0 104,000 93,250 0 0
Terrence E. O'Rourke........... 0 0 8,500 54,500 0 0
Thomas A. Madden............... 0 0 105,625 77,000 0 0
</TABLE>
---------------
(1) Based on the closing price of the Company's Common Stock ($14.6875) on the
New York Stock Exchange -- Composite Transactions reporting system on
September 29, 2000, the last trading day in that month, none of the
outstanding options to purchase the Company's Common Stock were in the
money.
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows information with respect to awards made during
fiscal year 2000 to the Named Executive Officers under the 1997 Long-Term
Incentives Plan.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYMENT UNDER
SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER MATURATION OR ------------------------------------
NAME RIGHTS(1)(2) PAYMENT THRESHOLD TARGET(2) MAXIMUM(2)
---- -------------- ------------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Larry D. Yost............ $446,333 10/1/99-9/30/02 $0 $446,333 $1,339,000
V. William Hunt.......... 133,900(3) 10/1/98-9/30/01 0 133,900 401,700
267,800(3) 10/1/99-9/30/02 0 267,800 803,400
Prakash R. Mulchandani... 243,000 10/1/99-9/30/02 0 243,000(4) 729,000(4)
Terrence E. O'Rourke..... 206,667 10/1/99-9/30/02 0 206,667 620,000
Thomas A. Madden......... 171,167 10/1/99-9/30/02 0 171,167 513,500
</TABLE>
---------------
(1) Potential awards for target performance are expressed as cash amounts.
(2) Amounts are stated before application of stock price change modifier,
described below.
15
<PAGE> 20
(3) In connection with the Merger, Mr. Hunt was granted pro rata awards with
respect to these previously-established performance periods. See Employment
Agreement with V. William Hunt below.
(4) Mr. Mulchandani will receive a pro rated award based on the portion of the
performance period prior to his retirement. See the description of his
retirement arrangements under the heading Executive Compensation -- Summary
Compensation Table above.
In connection with the Merger, the Company adopted the Meritor 1997
Long-Term Incentives Plan. Under this Plan, the Compensation Committee of the
Board of Directors establishes performance periods of at least three fiscal
years duration and performance objectives for those periods, and grants
potential awards expressed as cash payments to key employees of the Company and
its subsidiaries. Participants earn awards upon conclusion of the applicable
performance period (which may vary from 0% to 300% of the target award) based on
actual performance, as measured by sales growth, cash flow/return on investment
and return on sales, against target levels established by the Compensation
Committee. However, awards are subject to achieving minimum threshold levels
established by the Compensation Committee. The award payments are further
modified by the percentage change in the Company's Common Stock price over the
three-year period of the performance plans, which may increase or decrease the
payment finally awarded. At the discretion of the Compensation Committee,
payments may be made wholly or partly by delivering shares of the Company's
Common Stock valued at the fair market value on the payment date.
Long-term incentive payments in 2000 were made in cash and in 1998 were
made in cash or in restricted shares of Meritor common stock, based on the
closing price on the New York Stock Exchange -- Composite Transactions reporting
system on the payment date. There were no long-term incentive payments in 1999,
because the three-year performance cycle ending on September 30, 1999 was
terminated after the first year. In connection with this early termination in
fiscal year 1998, certain Named Executive Officers were granted options to
purchase Meritor common stock. These options, which were converted to options to
purchase Company Common Stock in connection with the Merger, are included for
1998 under the column headed "Stock Underlying Options" in the Summary
Compensation Table above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Board of
Directors, which consists entirely of non-employee directors (see Board of
Directors and Committees above), has responsibility for reviewing all aspects of
the Company's executive compensation and has furnished the following report.
Prior to the Merger, the Compensation and Management Development Committee of
the board of directors of Meritor ("Meritor Compensation Committee") was
responsible for Meritor's executive compensation. The philosophy and objectives
adopted by the Company's Compensation Committee, as described below, are
consistent with those established by the Meritor Compensation Committee.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Compensation Committee has adopted compensation policies for the
Company intended to "pay for performance" through meeting three fundamental
objectives:
- foster the creation of shareowner value through close alignment of the
financial interests of executives with those of the Company's
shareowners,
- recognize individual and team performance through evaluation of each
executive's effectiveness in meeting strategic and operating plan goals,
and
- create compensation systems to attract, retain and motivate the high
caliber of executives necessary for the Company's leadership and growth.
EMPLOYEE STOCK OWNERSHIP
The Compensation Committee believes the focus on "pay for performance" can
best be achieved by aligning the financial interests of the Company's key
executives with those of the shareowners. Accordingly, it
16
<PAGE> 21
has set the following minimum Ownership Guidelines (multiple of base salary) to
be achieved and maintained:
<TABLE>
<CAPTION>
COMMON STOCK
MARKET VALUE
------------
<S> <C>
- Chief Executive Officer and President..................... 5
- Senior Vice Presidents.................................... 3
- Other Executive Officers.................................. 2
- Other Vice Presidents..................................... 1.5
- Other Executives subject to the guidelines................ 1
</TABLE>
Non-U.S. based executives in each category listed above are subject to the
same Ownership Guidelines except in the case of "Other Vice Presidents," who are
subject to a multiple of 1, and "Other Executives subject to the guidelines,"
who are subject to a multiple of 0.5.
Only shares owned directly (including restricted shares of Common Stock) or
through savings plans of the Company or Rockwell, but not shares subject to
unexercised stock options, are considered for determining whether an executive
meets the Ownership Guidelines. The Ownership Guidelines provide a transition
period during which executives may achieve compliance. In general, this period
ends five years after the date the Ownership Guidelines become applicable to
them. All executives of the Company are within the five-year transition period
for satisfying the Guidelines. As of November 30, 2000, the chief executive
officer, president, senior vice presidents and other executive officers owned an
aggregate of 706,852 shares of the Company's Common Stock.
COMPENSATION STRATEGY
The Compensation Committee carries out its "pay for performance" philosophy
by tying each executive's total compensation to the performance of both the
Company and the individual. Base salaries are set at a level that is competitive
with other major automotive suppliers, commensurate with responsibilities and
experience. However, executives have an opportunity to earn above-median
compensation through the Company's annual and long-term incentive plans, which
provide rewards for superior performance by the individual and the Company. The
Compensation Committee considers the total compensation potentially available to
each executive in establishing each element of compensation.
At the beginning of fiscal year 2000, the Meritor Compensation Committee
reviewed data from competing companies and reference data for a broader group of
comparable industrial companies in determining executive compensation for the
year. At the time of the Merger, executive compensation was again reviewed and
revised where appropriate (but not for any of the Named Executive Officers) in
light of the larger size of the Company and the increased responsibilities of
executives. The Compensation Committee reviewed data from competing companies
compiled by Towers Perrin in consultation with the senior human resources
executives of the Company, including nine of the 14 companies included in the
peer group index used in the shareowner return performance graph. In addition,
reference data for a broader group of comparable industrial companies was
reviewed.
The Compensation Committee also considers the tax deductibility of
executive compensation in determining the amount and form of awards. Section
162(m) of the Internal Revenue Code provides that the Company may not deduct
compensation in excess of one million dollars paid to a Named Executive Officer
in any taxable year, unless the compensation is "performance based." Awards
under the 1997 Long-Term Incentives Plan are "performance based" for purposes of
Section 162(m) and are not subject to the limit on deductibility. However, base
salaries and awards under the Incentive Compensation Plan do not qualify as
"performance based" compensation for this purpose, because the Compensation
Committee retains discretion with respect to these payments. Accordingly, the
one-time bonus received by Mr. Yost for fiscal year 2000 (see note 8 to the
table under the heading Executive Compensation -- Summary Compensation Table
above) will not be deductible. The balance of his compensation for that year
that does not qualify as "performance based" and exceeds the limit in Section
162(m) was received in a deferred award of Common Stock. This
17
<PAGE> 22
Common Stock will be delivered to him the year after his retirement and will
therefore be deductible by the Company for that year.
The Compensation Committee believes that a substantial portion of total
compensation should be based on the Company's performance and structures
compensation arrangements in a manner that will avoid the deduction limitations
imposed by Section 162(m) in appropriate circumstances. However, tax
deductibility is only one of many factors that are considered in any
compensation decision. The Compensation Committee believes that it is necessary
that the Committee retain the right and flexibility to provide compensation
arrangements that may not be fully deductible under Section 162(m) if, in the
Compensation Committee's view, such arrangements are in the best interests of
the Company and its shareowners.
COMPONENTS OF THE COMPANY'S COMPENSATION PLANS
The primary components of the Company's executive compensation are base
salary, annual incentives and long-term incentives. Each of these components is
discussed below.
- Base Salary -- In the early part of fiscal year 2000, the Meritor
Compensation Committee established the base salaries of the senior executives of
Meritor, including Mr. Mulchandani, Mr. O'Rourke and Mr. Madden. The Meritor
Compensation Committee separately determined the salary for the Chief Executive
Officer (as discussed below), and established the base salaries of other senior
executives upon recommendations of the Chief Executive Officer and Meritor's
senior human resources executives. The recommended base salaries were developed
based on survey data and consultants' reports, on individual performance and on
judgments as to the expected future contributions of the individual senior
executives. Base salaries were also adjusted to reflect the number of years of
experience that each executive had in his or her current position. At the time
of the Merger, the Compensation Committee reviewed the base salary of each of
the Company's senior executives, using the same procedures, and made adjustments
where appropriate.
- Annual Incentives -- Near the beginning of fiscal year 2000, the Meritor
Compensation Committee and the Board of Directors reviewed with the Chief
Executive Officer the corporate goals and objectives for that year. These goals
and objectives were focused on shareowner value creation objectives, which
included measurable financial goals for the fiscal year as well as strategic
goals that require more subjective assessments. The financial objectives for
fiscal year 2000 included earnings per share growth and improvement in the ratio
of non-cash working capital to sales. The Company's strategic objectives related
to building customer relationships; enhancing organizational excellence;
developing long-term leadership; improving competitive position; and exercising
social responsibility. In addition, separate goals and objectives were developed
for each of Meritor's business units, tailored to its particular operations, and
for each individual.
When corporate, business unit and individual goals and objectives are
achieved, incentive compensation is intended to be awarded at or above 100% of
stated target levels. These target levels were established based on broad
industry surveys, with significant upward and downward leverage dependent on
performance. For fiscal year 2000, annual incentive compensation for the
Company's executives who were former Meritor employees averaged below target
levels.
In determining the incentive compensation for fiscal year 2000 for Mr.
Yost, Mr. Mulchandani, Mr. O'Rourke and Mr. Madden (see the column headed
"Bonus" in the table under Executive Compensation -- Summary Compensation Table
above) and other key employees of the Company that had been Meritor employees,
the Compensation Committee focused on the significant positive accomplishments
of Meritor and the Company over the past year. The effective leadership of the
management team completed various important strategic initiatives (including the
Merger), made significant progress toward successfully integrating the
operations of Arvin and Meritor, effectively managed costs to offset earnings
declines resulting from adverse market conditions, and identified specific areas
in which merger synergies can be achieved in future years. The Committee
concluded that these accomplishments merited awarding of incentive compensation
in that intrinsic shareowner value was created, even though the price of the
Company's Common Stock did not reflect these accomplishments.
18
<PAGE> 23
The Compensation Committee considered the effect of acquisitions and
dispositions and the effect of the Merger in fiscal year 2000. It determined
that for each business acquired or disposed of during the fiscal year, (a) the
actual sales and profit after tax of the business, for the portion of the year
during which it was part of the Company, would be included for purposes of the
annual incentive calculation; (b) performance for prior periods, against which
the current period was compared, would not be adjusted to reflect the pro forma
effects of the transaction; and (c) the gain realized on disposition of a
business would be included for purposes of the annual incentive calculation. The
Compensation Committee also determined, with respect to the Merger, that the
actual sales and profit after tax attributable to Arvin, for the portion of the
year during which it was part of the Company, would be excluded for purposes of
the annual incentive calculation; however, the level of incentive compensation
awarded for fiscal year 2000 would be reduced to reflect the effects of the
Merger.
- Long-Term Incentives -- The Company's 1997 Long-Term Incentives Plan
provides the flexibility to grant long-term incentives in a variety of forms,
including target performance awards, stock options, stock appreciation rights
and restricted shares of Common Stock. Annually, the Compensation Committee
evaluates the type of long-term incentives it believes are most likely to
achieve the Company's total compensation objectives.
In fiscal year 2000, the Meritor Compensation Committee provided long-term
incentives to executive officers two-thirds through stock option grants and
one-third through awards under long-term performance plans. Other executives'
long-term incentives were provided one-half each through stock options and
awards under long-term performance plans. Other key employees' long-term
incentives were provided solely through stock option grants.
In accordance with these practices, the Meritor Compensation Committee
granted stock options to executive officers, including Mr. Yost, Mr.
Mulchandani, Mr. O'Rourke and Mr. Madden (see the table under Executive
Compensation -- Option Grants above), in fiscal year 2000. The Meritor
Compensation Committee determined the individual award of stock options to the
Chief Executive Officer (as discussed below), and reviewed the Chief Executive
Officer's recommendations for individual awards of stock options to other key
executives. The Meritor Compensation Committee also considered relevant survey
data and consultants' reports and the anticipated future contributions of the
individual executive officers.
In fiscal year 2000, the Meritor Compensation Committee established a
performance plan with a three-year performance period ending September 30, 2002,
and made target performance awards to executives, including Mr. Yost, Mr.
Mulchandani, Mr. O'Rourke and Mr. Madden (see Executive Compensation --
Long-Term Incentive Plan Awards above). Under the performance plan, potential
compensation depends on achieving levels of earnings per share growth and cash
flow/return on investment, as modified by the change in the price of Meritor
common stock (as converted to Company Common Stock) during the term of the
performance period.
In fiscal year 1998, the Meritor Compensation Committee granted key
executives long-term incentives under the 1997 Long-Term Incentives Plan. These
incentives were granted, in part, in the form of target performance awards under
a performance plan that provided a long-term compensation opportunity dependent
on achieving certain goals over a period of three fiscal years ended September
30, 2000. These goals were measured by sales growth, cash flow/return on
investment and return on sales, as modified by the change in the price of
Meritor common stock (as converted to Company Common Stock) during the term of
the performance period. On November 8, 2000, the Compensation Committee made
long-term incentive awards to key executives, including Mr. Yost, Mr.
Mulchandani and Mr. Madden, with respect to these 1998 grants (see the column
headed "Long-Term Incentive Payments" in the table under Executive
Compensation -- Summary Compensation Table above). Awards were based on the
formulae in the performance plan established by the Meritor Compensation
Committee, as adjusted to reflect the Merger. These awards were paid in cash.
Special Awards -- In recognition of significant contributions in effecting
the Merger, the Compensation Committee made special awards to certain executive
officers of the Company who had been executive officers of Meritor, including
Mr. Yost, Mr. O'Rourke and Mr. Madden. These awards were paid in cash in July
2000
19
<PAGE> 24
(see the column headed "All Other Compensation" in the table under Executive
Compensation -- Summary Compensation Table above).
COMPENSATION OF FORMER ARVIN EXECUTIVE OFFICERS
The base salaries and incentive compensation of Mr. Hunt and other senior
executive officers of Arvin for fiscal year 2000 prior to the Merger, including
stock option grants, were established by the human resources committee of the
Arvin board of directors. Under the terms of Arvin's stock-based plans, the
Merger constituted a "change of control" which resulted in immediate vesting of
all outstanding options to purchase common stock. In addition, under the terms
of change of control agreements between Arvin and certain of its executives,
these executives became entitled to severance payments and other benefits after
the Merger was completed (see Change of Control Agreements below).
In accordance with the terms of an employment agreement with Mr. Hunt, the
Compensation Committee awarded him pro rata stock option grants and target
awards for the three-year performance periods ending September 30, 2001 and
September 30, 2002, previously established by the Meritor Compensation Committee
in fiscal years 1999 and 2000. (See Option Grants and Long-Term Incentive Plan
Awards above and Employment Agreement with V. William Hunt below.)
For Mr. Hunt and other former Arvin executives who are now Company officers
and employees, future compensation will be determined by the Compensation
Committee, under the philosophies and procedures outlined above. (See Employment
Agreement with V. William Hunt and Offer Letters to Other Senior Executives
below.)
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Yost's base salary for fiscal year 2000 was $700,000, which the Meritor
Compensation Committee believed was in line with its compensation philosophy and
appropriately reflected the responsibilities Mr. Yost had as Chief Executive
Officer of Meritor.
In determining Mr. Yost's annual incentive compensation for fiscal year
2000, the Compensation Committee concluded that Meritor and the Company had
performed well under his leadership, either meeting or making significant
progress with respect to their goals and objectives, consummating the Merger,
and making substantial strides toward successful integration of the merged
companies. In recognition of strong individual and Company performance in fiscal
year 2000 and Mr. Yost's continued leadership in pursuing the Company's
envisioned future, and consistent with its "pay for performance" philosophy, the
Compensation Committee awarded Mr. Yost an annual incentive award of $500,000.
The Meritor Compensation Committee granted stock options to Mr. Yost in
fiscal year 2000 as long-term incentives. (See Option Grants above.) In
determining the number of options granted, the Meritor Compensation Committee
considered advice of independent compensation consultants and the value of long-
term incentives provided by other comparable companies, as reported in surveys.
The Meritor Compensation Committee also considered Mr. Yost's total
compensation, as well as his past and expected future contributions to the
Company's achievement of its long-term performance goals. The Meritor
Compensation Committee also granted Mr. Yost target performance awards under the
performance plan established in fiscal year 2000 for the three-year performance
period ending September 30, 2002. (See Executive Compensation -- Long-Term
Incentive Plan Awards above.)
The Compensation Committee made a long-term incentive award of $300,382 to
Mr. Yost in fiscal year 2000 with respect to the target performance awards
granted in 1998 by the Meritor Compensation Committee (see "Long-Term
Incentives" above in this report). This award, which was paid in cash, was based
on the same criteria applicable to other executives and the position Mr. Yost
held with Meritor at the beginning of the performance period.
The Compensation Committee also granted to Mr. Yost a special award in
connection with completion of the Merger, as discussed under "Special Awards"
above in this report, in the amount of $700,000.
20
<PAGE> 25
The Board in executive session (when Mr. Yost was not present) received and
discussed the Compensation Committee's evaluation of the Company's and Mr.
Yost's performance in fiscal year 2000 and its proposed 2000 incentive
compensation for Mr. Yost. The Meritor board observed similar procedures in
connection with long-term incentives granted to Mr. Yost in the form of stock
options and target performance awards.
SUMMARY
The Committee believes that the Company's compensation plans are integrated
and consistent with the Company's strategic objectives and are properly aligned
with shareowners' best interests. The programs enable the Company to attract,
retain and motivate highly qualified individuals and provide appropriate
incentives to reward them for achieving and surpassing corporate and personal
goals. The Compensation Committee periodically re-assesses these programs to
assure that they emphasize performance and reward the enhancement of shareowner
value, and modifies the programs as necessary and appropriate to achieve their
stated objectives.
Compensation and Management
Development Committee
Harold A. Poling, Chairman*
Donald R. Beall*
Steven C. Beering
Robert E. Fowler, Jr.
Charles H. Harff*
James E. Perrella
*Also members of the Meritor Compensation Committee prior to the Merger.
CHANGE OF CONTROL AGREEMENTS
Prior to the Merger, Arvin entered into change of control agreements with
twelve of its officers, including Mr. Hunt. These agreements provided that Arvin
would employ each executive for three years following a change of control at a
base salary at least equal to what he received prior to the change of control,
and with an annual bonus at least equal to his highest bonus in the three years
prior to the change of control. These agreements also provided that each officer
was entitled to a cash payment and benefits if Arvin terminated his employment
without cause or if he terminated his employment for good reason (each as
defined in the agreements) during the three-year period following a change of
control, or if the officer terminated his employment for any reason within
thirty days after the first anniversary of a change of control. The cash payment
consisted of unpaid salary, accrued annual bonus, any deferred compensation, a
pension supplement and an amount equal to three times the officer's annual base
salary plus his highest bonus during the preceding three years. In addition, the
officer was entitled to participate in all welfare plans for three years and to
receive out-placement services. The agreements also provided that Arvin would
reimburse the officer in question for any excise tax imposed under the Internal
Revenue Code as a result of the compensation paid to him under the change of
control agreement.
The Merger constituted a change of control for purposes of these
agreements. The Company made cash payments in fiscal year 2000 to eight former
Arvin officers whose employment terminated, and continues to be bound by the
remaining provisions of the agreements for these eight individuals. Change of
control agreements for Mr. Hunt and for three former Arvin executives who
accepted offer letters from the Company terminated at the time of the Merger, as
described below.
EMPLOYMENT AGREEMENT WITH V. WILLIAM HUNT
The Company has an employment agreement with Mr. Hunt that became effective
upon completion of the Merger. Under this agreement, which supersedes his Arvin
change of control agreement, the parties agreed that Mr. Hunt will be employed
in his current position as Vice Chairman and President until
21
<PAGE> 26
October 2003. The agreement also provides that the Company intends to recommend
to the Board that Mr. Hunt be elected Chief Executive Officer no later than
October 1, 2002 and Chairman of the Board no later than October 1, 2003. In
exchange for his services, Mr. Hunt will receive no less than $800,000 per year
as a base salary, which will be reviewed annually in accordance with normal
practice for senior executives. During fiscal year 2001, the sum of his base
salary and annual bonus will be at least 90% of the sum of Mr. Yost's base
salary and annual bonus. Mr. Hunt is also entitled to participate in all
long-term incentive plans applicable to senior executives, and, for the
performance period covering fiscal years 1999 through 2001, his award will be at
least 90% of one-third of the option and cash target performance awards to Mr.
Yost for that period. The agreement also provides for an initial award to Mr.
Hunt at the time of the Merger. This award was made in a lump-sum cash payment
of $7,732,662, as of July 7, 2000, and is included under the column headed
"Other Compensation" in the Summary Compensation Table above.
The employment agreement provides that if the Company terminates Mr. Hunt's
employment without cause, or if Mr. Hunt terminates it for good reason, each as
defined in the agreement, Mr. Hunt will be entitled to (a) his accrued and
unpaid salary and a pro rata annual bonus, (b) a cash severance payment equal to
three times the sum of his base salary and the highest of his three most recent
annual bonuses, (c) accrued vacation pay and any compensation previously
deferred, (d) an immediate annual pension benefit at least equal to the benefit
he would receive if the compensation provided for under (a) through (c) had been
paid to him over the next three years, (e) lifetime medical and dental benefits,
(f) immediate and full vesting of any restricted stock, stock options, other
stock-based compensation and long-term incentive awards granted to him, and (g)
any other benefits to which he would be entitled outside the agreement. The
agreement also has an excise tax gross-up provision under which he will be made
whole after payment of any excise taxes under the Internal Revenue Code. Mr.
Hunt has agreed that he will refrain from competing with the Company for the
term of his employment and, if his employment is terminated for cause by the
Company or by him without good reason, for two years thereafter.
OFFER LETTERS TO OTHER EXECUTIVE OFFICERS
Each executive officer of the Company (except Mr. Hunt) received and
accepted an employment offer letter at or after the time of the Merger. Under
the terms of each such offer letter, the executive receives a base salary no
less than his or her fiscal year 2000 base salary and is entitled to annual and
long-term incentive compensation and fringe benefits on the same basis as other
executive officers. Former Arvin officers who accepted employment offer letters
also receive pro rata target awards for certain existing performance periods
under the Company's 1997 Long-Term Incentives Plan.
If the Company terminates the executive's employment without cause, the
executive will receive any accrued and unpaid compensation, monthly severance
pay for a period of 12 to 36 months (depending on years of service), pro rata
annual bonus participation through the date of termination, continuation of
benefits throughout the severance period, full vesting of all stock-based
incentive awards, extension of exercise period for stock options, payment of all
vested benefits, and outplacement services. The agreements also provide that the
executive will be made whole for any excise tax imposed under the Internal
Revenue Code. The executives also agreed to an 18-month non-solicitation
provision, perpetual non-disclosure and confidentiality, and mandatory
arbitration of disputes.
The offer letters also provided for cash payments to certain officers upon
completion of the Merger. Three Arvin executives received cash payments equal to
the payments under their Arvin change of control agreements, and these
agreements were terminated. Nine Meritor executives who accepted offer letters
(including Messrs. Yost, Madden and O'Rourke) also received cash payments in
specified amounts. At least 50% of these cash payments, net of taxes, was
required to be invested in ArvinMeritor Common Stock prior to October 31, 2000.
22
<PAGE> 27
SHAREOWNER RETURN PERFORMANCE PRESENTATION
The Merger of Meritor and Arvin into the Company occurred on July 7, 2000,
and the Company's Common Stock began trading on the New York Stock Exchange on
July 10, 2000. As a result, the cumulative total shareholder return on the
Common Stock of the merged entity cannot be provided for any period before that
date.
The line graph below compares the cumulative total shareowner return on an
investment in Meritor's common stock against the cumulative total return of the
S&P 500 and a peer group of companies for the period from October 1, 1997 (the
date Meritor commenced operations as an independent company) to September 30,
2000, assuming a fixed investment of $100 at the respective closing prices on
the last day of each quarter and reinvestment of all cash dividends. The quarter
ended September 30, 2000 reflects the exchange of each share of Meritor common
stock for .75 of a share of Company Common Stock on the effective date of the
Merger.
COMPARISON OF TOTAL RETURN
COMMON STOCK, S&P 500 INDEX(1) AND PEER GROUP INDEX(2)
[LINE GRAPH]
<TABLE>
<CAPTION>
ARVINMERITOR PEER GROUP INDEX S&P 500 INDEX
------------ ---------------- -------------
<S> <C> <C> <C>
10/01/97 100.00 100.00 100.00
12/31/97 88.61 93.18 102.87
3/31/98 112.23 108.08 117.22
6/30/98 101.81 99.66 121.09
9/30/98 64.20 76.52 109.05
12/31/98 90.26 88.24 132.27
3/31/99 66.86 85.25 138.86
6/30/99 110.44 104.58 148.65
9/30/99 90.84 89.17 139.37
12/31/99 84.84 76.83 160.10
3/31/00 69.72 75.71 163.78
6/30/00 48.92 63.73 159.42
7/7/00 57.72 65.99 159.42
9/29/00 49.60 65.73 157.88
</TABLE>
---------------
(1) Standard & Poor's 500 Market Index.
(2) The Company believes that a peer group of representative independent
automotive suppliers of comparable size and products to ArvinMeritor is
appropriate for comparing shareholder return. The peer group consists of
Borg-Warner Automotive, Inc., Cummins Engine, Inc., Dana Corporation, Delphi
Automotive Systems, Detroit Diesel Corporation, Eaton Corporation, Federal
Mogul Corporation, Johnson Controls, Inc., Lear Corporation, MascoTech,
Inc., Superior Industries International, Tenneco Automotive, Inc., Tower
Automotive, Inc. and Visteon Corporation. This differs from the peer group
in last year's proxy statement in that (1) Arvin, which was merged into the
Company, is no longer included, and (2) Delphi, Tenneco and Visteon were
added to the peer group. The results would not be materially different
without the addition of these three companies.
23
<PAGE> 28
RETIREMENT BENEFITS
Arvin and Meritor had separate retirement plans covering their respective
employees, and the Company assumed these plans at the time of the Merger. These
separate retirement plans will be superseded by an integrated plan of the
Company, effective January 1, 2001.
The following table shows the estimated aggregate annual retirement
benefits payable on a straight life annuity basis to participating employees in
the earnings and years of service classifications indicated under the Company's
new retirement plan, which covers most officers and other salaried employees of
the Company on a noncontributory basis. These benefits reflect a reduction to
recognize in part the cost of Social Security benefits related to service with
the Company. The plan also provides for the payment of benefits to an employee's
surviving spouse or other beneficiary.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF SERVICE INDICATED
-----------------------------------------------------------------------
AVERAGE ANNUAL EARNINGS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
----------------------- --------- --------- --------- --------- --------- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
$ 600,000 ................... $ 88,421 $132,631 $176,631 $221,051 $265,262 $ 309,472
800,000 ................... 118,421 177,631 236,631 296,051 355,262 414,472
1,000,000 ................... 148,421 222,631 296,631 371,051 445,262 519,472
1,200,000 ................... 178,421 267,631 356,631 446,051 535,262 624,472
1,400,000 ................... 208,421 312,631 416,631 521,051 625,262 729,472
1,600,000 ................... 238,421 357,631 476,631 596,051 715,262 834,472
1,800,000 ................... 268,421 402,631 536,631 671,051 805,262 939,472
2,000,000 ................... 298,421 447,631 596,631 746,051 895,262 1,044,472
2,200,000 ................... 328,421 492,631 656,631 821,051 985,262 1,149,472
</TABLE>
Covered compensation includes salary and annual bonus. The calculation of
retirement benefits under the new plan generally is based upon average earnings
for the highest five consecutive years of the ten years preceding retirement.
The Company's new plan credits participants for service earned with the Company,
Arvin, Meritor and Rockwell, as applicable. The credited years of service of
Messrs. Yost, Hunt, Mulchandani, O'Rourke and Madden are 29, 23, 26, 1 and 19,
respectively.
The new plan includes "grandfathering" provisions under which the
retirement benefits payable to certain long-term employees will be adjusted in
some cases to reflect differences between the benefits earned under the new plan
and those earned under the predecessor plans prior to January 1, 2001.
Sections 401(a)(17) and 415 of the Internal Revenue Code limit the annual
benefits that may be paid from a tax-qualified retirement plan. As permitted by
the Employee Retirement Income Security Act of 1974, the Company has established
a supplemental plan that authorizes the payment out of its general funds of any
benefits calculated under provisions of the applicable retirement plan which may
be above the limits under these sections. Effective January 1, 2001, this new
supplemental plan will replace separate supplemental plans of Arvin and Meritor.
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors is currently
comprised of six directors, none of whom are officers or employees of the
Company. All members are "independent" under rules recently adopted by the New
York Stock Exchange. The Board of Directors has adopted a written charter for
the Audit Committee, which is included as an appendix to this proxy statement.
In accordance with its written charter, the Audit Committee assists the Board in
fulfilling its responsibility for monitoring the integrity of the accounting,
auditing and financial reporting practices of the Company. In addition, for each
fiscal year, the Audit Committee selects independent public accountants to audit
the financial statements of the Company and its subsidiaries, subject to
approval of the Board of Directors and the Company's shareowners. During the
period from the date of the Merger of Arvin Industries, Inc. and Meritor
Automotive, Inc. into the Company to the end of fiscal year 2000, the Audit
Committee held one meeting.
24
<PAGE> 29
Prior to the Merger, the audit committee of the board of directors of
Meritor Automotive, Inc. performed these functions for the Meritor board. The
Meritor audit committee met twice in fiscal year 2000. Prior to the release of
quarterly earnings announcements in fiscal year 2000, the chairman of the
Meritor audit committee also reviewed and discussed the interim financial
information contained therein with Deloitte & Touche LLP, independent auditors,
and with Meritor's chief financial officer and its controller (for the first and
second quarters) or the Company's chief financial officer and its controller
(for the third quarter).
The Audit Committee received from Deloitte & Touche LLP written disclosures
and the letter regarding its independence as required by Independence Standards
Board Standard No. 1, describing all relationships between the auditors and the
Company that might bear on the auditors' independence, and discussed this
information with Deloitte & Touche LLP. The Audit Committee also discussed with
management, the internal auditors and with Deloitte & Touche LLP the quality and
adequacy of the Company's internal controls and the internal audit function's
organization, responsibilities, budget and staffing. The Audit Committee also
reviewed with both Deloitte & Touche LLP and the internal auditors their audit
plans, audit scope and identification of audit risks.
The discussions with Deloitte & Touche LLP also included the matters
required by generally accepted auditing standards, including those described in
Statement on Auditing Standards No. 61, as amended. The Audit Committee also
discussed the results of internal audit examinations.
The Audit Committee has reviewed the audited financial statements of the
Company and its consolidated subsidiaries as of and for the fiscal year ended
September 30, 2000, and has discussed the audited financial statements with
management and with Deloitte & Touche LLP. Based on all of the foregoing reviews
and discussions with management and Deloitte & Touche LLP, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000, to be filed with the Securities and Exchange Commission.
Audit Committee
William D. George, Jr., Chairman
Ivan W. Gorr
Charles H. Harff*
Victoria B. Jackson*
Don J. Kacek
James E. Marley*
*Also members of the Meritor audit committee, prior to the Merger.
25
<PAGE> 30
PROPOSAL TO APPROVE THE SELECTION OF AUDITORS
The Board of Directors of the Company has selected the firm of Deloitte &
Touche LLP as the auditors of the Company, subject to the approval of the
shareowners. Deloitte & Touche LLP have acted as auditors for the Company since
the Merger and acted as auditors for Meritor from its inception.
Before the Audit Committee recommended to the full Board the appointment of
Deloitte & Touche LLP, it carefully considered the qualifications of that firm,
including its performance for the Company and for Meritor prior to the Merger
and its reputation for integrity and for competence in the fields of accounting
and auditing. Representatives of Deloitte & Touche LLP are expected to attend
the 2001 Annual Meeting to respond to appropriate questions and to make a
statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
APPROVE THE SELECTION OF DELOITTE & TOUCHE LLP TO ACT AS AUDITORS FOR THE
COMPANY, WHICH IS PRESENTED AS ITEM (B).
VOTE REQUIRED
The five nominees for election as directors who receive the greatest number
of votes cast for the election of directors at the 2001 Annual Meeting by the
holders of the Company's Common Stock entitled to vote at the meeting, a quorum
being present, will become directors at the conclusion of the tabulation of
votes. To approve the selection of auditors, more votes must be cast in favor of
the proposal than are cast against it, a quorum being present. The presence, in
person or by proxy, of the holders of at least a majority of the shares of the
Company's Common Stock issued and outstanding on the record date set for the
meeting is necessary to have a quorum.
Under Indiana law and the Company's Restated Articles of Incorporation and
By-Laws, the aggregate number of votes cast "for" and "against" by all
shareowners present in person or represented by proxy at the meeting will be
counted for purposes of determining the minimum number of affirmative votes
required for approval of the selection of auditors, and the total number of
votes cast "for" such matter will be counted for purposes of determining whether
sufficient affirmative votes have been cast. The shares of a shareowner who
abstains from voting on a matter or whose shares are not voted by reason of a
broker non-vote on a particular matter will be counted for purposes of
determining whether a quorum is present at the meeting so long as the shareowner
is present in person or represented by proxy. An abstention from voting or a
broker non-vote on a matter by a shareowner present in person or represented by
proxy at the meeting has no effect in the election of directors and the approval
of the selection of auditors (assuming a quorum is present).
OTHER MATTERS
The Board of Directors does not know of any other matters which may be
presented at the meeting. In the event of a vote on any matters other than those
referred to in items (a) and (b) of the accompanying Notice of 2001 Annual
Meeting of Shareowners, it is intended that properly given proxies will be voted
on the additional matters in accordance with the judgment of the person or
persons voting such proxies.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the New
York Stock Exchange. Officers, directors and greater than ten percent
shareowners are required by SEC regulation to furnish the Company with copies of
all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors and greater than
ten percent beneficial owners have filed with the SEC on a timely basis all
required forms with respect to transactions in securities of the Company in
fiscal year 2000.
26
<PAGE> 31
ANNUAL REPORT AND FORM 10-K
The Company's Annual Report to Shareowners, including financial statements,
for the fiscal year ended September 30, 2000, was previously mailed to
shareowners. If you have multiple accounts and received multiple copies of the
Company's Annual Report to Shareowners, and you want to receive just one copy
next year, mark the box provided on the proxy cards for all but one of your
accounts, or so state when you grant your proxy via telephone or Internet.
THE COMPANY WILL PROVIDE TO SHAREOWNERS WITHOUT CHARGE, UPON WRITTEN
REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 2000, AS FILED WITH THE SEC (WITHOUT EXHIBITS). EXHIBITS TO
THE FORM 10-K WILL BE FURNISHED UPON WRITTEN REQUEST AND PAYMENT OF A FEE OF TEN
CENTS PER PAGE COVERING THE COMPANY'S COSTS. WRITTEN REQUESTS SHOULD BE DIRECTED
TO THE COMPANY AT 2135 WEST MAPLE ROAD, TROY, MICHIGAN 48084-7186, ATTENTION:
INVESTOR RELATIONS.
SHAREOWNER PROPOSALS FOR 2002 ANNUAL MEETING
Under the rules and regulations of the SEC, shareowner proposals for the
2002 Annual Meeting of Shareowners must be received on or before August 31,
2001, at the Office of the Secretary at the Company's World Headquarters located
at 2135 West Maple Road, Troy, Michigan 48084-7186, in order to be eligible for
inclusion in the Company's proxy materials. In addition, the Company's By-Laws
require a shareowner desiring to propose any matter for consideration at the
2002 Annual Meeting of Shareowners to notify the Company's Secretary in writing
at the above address on or after October 17, 2001 and on or before November 16,
2001.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally, or by
telephone, telegraph, telecopy, Internet or other means of communication by
directors, officers and employees of the Company without additional
compensation. The Company does not expect to pay any compensation for the
solicitation of proxies but will reimburse brokers and other persons holding
stock in their names, or in the names of nominees, for their expenses of
resending proxy materials to principals and obtaining their proxies.
December 29, 2000
If you plan to attend the Annual Meeting of Shareowners to be held in Troy,
Michigan on February 14, 2001, please be sure to request an admittance card by:
- marking the appropriate box on the proxy card and mailing the card using
the enclosed envelope; OR
- indicating your desire to attend the meeting when you grant your proxy
via the Company's telephone or Internet voting procedures; OR
- writing to the Company at the following address:
ArvinMeritor, Inc.
2135 West Maple Road
Troy, Michigan 48084
Attention: Secretary
27
<PAGE> 32
Appendix
ARVINMERITOR, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
RESOLVED, that pursuant to Section 3.14 of the Amended By-Laws and Section
23-1-34-6 of the Indiana Business Corporation Law, a committee of the Board of
Directors, to be known as the Audit Committee and charged with assisting the
Board of Directors in monitoring (1) the integrity of the financial statements
of the Corporation, (2) the compliance by the Corporation with legal and
regulatory requirements and (3) the independence and performance of the
Corporation's General Auditor and independent accountants, be, and it hereby is,
designated, effective as of the Effective Time, to consist of at least three and
not more than six members of the Board of Directors who shall meet the
independence and experience requirements of the New York Stock Exchange, which
Committee shall be chartered to have the following powers and duties and to
report thereon to the Board of Directors and the shareholders:
I. To review and reassess its charter annually and submit any changes
to the Board of Directors for approval;
II. For each fiscal year, to select and recommend employment of,
subject to approval of the shareholders (and to replace, where
appropriate), independent public accountants to audit the books, records,
accounts and financial statements of the Corporation and its subsidiaries;
III. To review with the independent public accountants, who shall be
accountable to the Board of Directors and the Audit Committee:
A. the scope of and the audit procedures utilized in their annual
audit and quarterly reviews of the Corporation's financial statements;
B. the Corporation's annual and quarterly financial statements
before their release, including significant financial reporting issues
and judgments made in connection therewith, as well as changes to the
Corporation's accounting principles;
C. the adequacy of the Corporation's system of internal controls
and any recommendations of the independent public accountants with
respect thereto; and
D. any comments they may have on significant issues related to
their audit activities, restrictions, if any, imposed on their work and
the cooperation they received during the audit;
IV. To review and approve the fees charged, and the scope and extent
of any non-audit services performed, by the independent public accountants
and to receive and evaluate at least annually a report from such
accountants as to their independence, and to report to the Board of
Directors the results of its evaluation;
V. To review with the Corporation's General Auditor:
A. the scope of the annual internal audit plan and the results of
completed internal audits; and
B. any comments the General Auditor may have on significant issues
related to the internal audit activities or restrictions, if any,
imposed thereon;
VI. To review with the Corporation's Chief Executive Officer, Chief
Financial Officer, General Counsel and other management personnel:
A. the Corporation's annual financial statements before their
release, including significant financial reporting issues and judgments
made in connection therewith, as well as changes to the Corporation's
accounting principles;
B. significant internal control matters;
A-1
<PAGE> 33
C. standards of business conduct policies, compliance by the
employees of the Corporation with the Corporation's standards of
business conduct policies and other related matters;
D. financial risk exposures and management's initiatives to
monitor and control such exposures;
E. the appointment of the Corporation's General Auditor; and
F. other matters within the scope of the Committee's duties;
VII. To review with the Corporation's Chief Financial Officer,
Controller and other management personnel the Corporation's quarterly
financial statements before their release, including significant financial
reporting issues and judgments made in connection therewith, as well as
changes to the Corporation's accounting principles;
VII. To meet at least annually with the Corporation's Chief Executive
Officer, Chief Financial Officer and General Counsel, the Corporation's
General Auditor and the independent public accountants in separate
executive sessions;
VIII. To investigate any matter brought to its attention within the
scope of its duties and to engage consultants or independent counsel in
connection therewith as the Committee deems appropriate.
A-2
<PAGE> 34
PROXY
ARVINMERITOR, INC.
PROXY CARD SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
DIRECTION CARD TO T. ROWE PRICE TRUST COMPANY, TRUSTEE,
THE NORTHERN TRUST COMPANY, TRUSTEE
and/or WELLS FARGO BANK, N.A., TRUSTEE
The undersigned hereby appoints Larry D. Yost, V. William Hunt and Charles
H. Harff, jointly and severally, proxies, with full power of substitution, to
vote shares of capital stock of the Company owned of record by the undersigned
and which the undersigned is entitled to vote, at the Annual Meeting of
Shareowners to be held at the Company's World Headquarters, 2135 West Maple
Road, Troy, Michigan, on February 14, 2001, or any adjournment thereof, as
specified on the reverse side of this card, and to vote in accordance with their
discretion on such other matters as may properly come before the meeting.
The undersigned also provides directions to T. Rowe Price Trust Company,
Trustee; The Northern Trust Company, Trustee; and Wells Fargo Bank, N.A.,
Trustee, to vote shares of capital stock of the Company allocated, respectively,
to accounts of the undersigned under the Meritor Automotive, Inc. Savings Plan,
the Arvin Employee Stock Benefit Trust, the various Rockwell International
Corporation Savings Plans (Rockwell Salaried Retirement Savings Plan, Rockwell
Non-Represented Hourly Retirement Savings Plan, Rockwell Employee Savings and
Investment Plan for Represented Hourly Employees, Rockwell Retirement Savings
Plan for Represented Hourly Employees and Rockwell Retirement Savings Plan for
Certain Employees), and which are entitled to be voted, at the aforesaid Annual
Meeting or any adjournment thereof, as specified on the reverse side of this
card.
The undersigned also provides directions to Wells Fargo Bank, N.A.,
Trustee, to vote all such shares allocated to Rockwell Savings Plan accounts of
the undersigned as it deems proper on such other matters as may properly come
before the meeting.
IF NO SPECIFICATION IS MADE ON THE REVERSE SIDE OF THIS CARD:
- ALL SUCH SHARES OWNED OF RECORD WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES PROPOSED FOR ELECTION AS DIRECTORS AND FOR PROPOSAL (b);
- ALL SUCH SHARES ALLOCATED TO THE ROCKWELL SAVINGS PLAN ACCOUNTS OF THE
UNDERSIGNED WILL BE VOTED AS WELLS FARGO AS TRUSTEE DEEMS PROPER; AND
- ALL SUCH SHARES ALLOCATED TO THE MERITOR SAVINGS PLAN AND ARVIN EMPLOYEE
BENEFIT TRUST ACCOUNTS OF THE UNDERSIGNED WILL BE VOTED ON PROPOSALS (a)
AND (b) IN THE SAME PROPORTION AS SHARES FOR WHICH VOTING INSTRUCTIONS
ARE RECEIVED.
-----------
SEE REVERSE
SIDE
-----------
(continued, and to be signed and dated, on the other side)
- - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
[ARVINMERITOR LOGO]
AFTER YOU READ THE PROXY/DIRECTION CARD AND THE ACCOMPANYING PROXY STATEMENT,
YOU CAN VOTE IN ONE OF THREE WAYS:
TELEPHONE VOTING:
1. Call 1-877-PRX-VOTE (1-877-779-8683), toll-free, from a touchtone
telephone (outside US and Canada, call 201-536-8073).
2. Enter your control number indicated on the reverse side of this card
just below the perforation.
3. Follow the recorded instructions.
INTERNET VOTING:
1. Log onto Internet and type: http://www.eproxyvote.com/arm.
2. Enter your control number indicated on the reverse side of this card
just below the perforation.
3. Follow the on-line instructions.
PROXY/DIRECTION CARD:
1. Mark, sign and date your proxy/direction card, and return it promptly in
the enclosed return envelope.
<PAGE> 35
Please mark your 5890
X votes as indicated
in this example.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR (a) AND (b).
--------------------------------------------------------------------------------
WITHHOLD
AUTHORITY
for all
FOR all nominees
nominees listed
(a) The election listed Nominees: 01 Joseph B. Anderson, Jr.,
of directors with 02 William D. George, Jr.,
a term expiring 03 Richard W. Hanselman,
in 2004 / / / / 04 Charles H. Harff and
For, except vote withheld from the 05 Larry D. Yost
following nominee(s):
-------------------------------------
(b) The selection of auditors FOR AGAINST ABSTAIN
/ / / / / /
Annual Report -- Mark here to
discontinue mailing of annual report
to shareowners for this account (for
multiple account holders only) / /
I will attend the annual meeting. / /
SIGNATURE(S) DATE
------------------------------------------------------ ---------
Note: Please sign, date and return the proxy card promptly using the enclosed
envelope. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such, and if signing for a
corporation, please give your title. When shares are in the name of more
than one person, each should sign the proxy.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
WHERE A VOTE IS NOT SPECIFIED:
- The proxies will vote the shares FOR the election of directors and
FOR proposal (b) and will vote as they deem proper on such other
matters as may properly come before the meeting;
- Wells Fargo, as Trustee, will vote the shares as it deems proper
on proposals (a) and (b) and on such other matters as may properly
come before the meeting; and
- T. Rowe Price, as Trustee, and Northern Trust, as Trustee, will
each vote the shares on proposals (a) and (b) in the same manner
and proportion as shares for which voting instructions are
received.
TO PARTICIPANTS IN THE ROCKWELL SAVINGS PLANS:
Please vote in accordance with the instructions on the reverse side of this
card by February 9, 2001. If you do not properly vote by that date, Wells Fargo
Bank, N.A., as Trustee for the Rockwell Savings Plans, will vote the shares
allocated to your Rockwell Savings Plan accounts as it deems proper.
